Cabinet 05 September 2011 Overview and Scrutiny 20 September 2011 Agenda Item No______8_______ BUDGET MONITORING 2011/12 – PERIOD 4 Summary: This report presents the budget monitoring position for the revenue account and capital programme to the end of period 4 (31 July 2011) and also includes a review of the current capital programme. Conclusions: The overall position at the end of July 2011 is showing an underspend for the current financial year. The overall financial position will be considered in further detail over the coming months as work on the future budgets and funding the grant cuts is undertaken. Recommendations: It is recommended that: 1) Cabinet note the contents of the report and the revenue account forecast for the current financial year; 2) That Cabinet note the current position on the 2011/12 capital programme and approve the amendments in relation to the amalgamation of a number of capital budgets and the removal of 2 schemes as detailed within section 7 of the report. Cabinet member(s): Ward(s) affected: All All Duncan Ellis, Acting Financial Services Manager, 01263 516330, Duncan.Ellis@north-norfolk.gov.uk Contact Officer, telephone number, and e-mail: 1. Introduction 1.1 This is the first budget monitoring report to Members for the current financial year 2011/12 and compares the actual expenditure and income position at the end of July 2011 to the base budget as set by Full Council in February 2011. 1.2 The outturn report for 2010/11 was reported to Members in June and detailed a number of underspends and grants which had not been fully utilised in the year which were carried forward in a number of earmarked reserves. Where applicable the base budget for 2011/12 has been updated to take account of the revised spend profile. 1.3 The base budget for 2011/12 includes savings of £558,268 and additional income of £578,188 totalling £1,136,456 and this report includes the latest position on both of these areas. 1.4 An updated capital programme for 2011/12 was approved as part of reporting the outturn position for 2010/11, this report also includes the latest monitoring position on the capital programme and also starts to highlight any scheme alterations and updates. Cabinet 05 September 2011 Overview and Scrutiny 20 September 2011 2. Background 2.1 Budget monitoring is carried out monthly with service managers and officers with budget responsibility. The detail within this report highlights the more significant variances against the profiled budget to date along with those which are expected to have a year end variance and also where applicable to recommend action to be taken to ensure that the overall budget remains achievable. 2.2 The Service Accountants have been working with the Budget Managers to investigate any budget variances identified during the first 4 months of the new financial year. Where significant variances are identified further work is undertaken to try and identify if the variance will result in a full year impact ie whether the variance may result in an over/underspend at the end of the year and, in the case of an overspend, what can be done to mitigate this. 2.3 Work will continue over the coming months to monitor the budget position and identify further savings that can be fed into both the Revised budget for 2011/12 and also into the Base budget projections for 2012/13. 2.4 Currently there are a number of consultations from Central Government which have the potential to impact on local government finance: • • • The Local Government Resource Review - launched on 18 July 2011 closes on 24 October 2011 and covers proposals for the localisation of Business Rates. A set of eight technical papers are yet to be published that will inform this consultation. Council Tax Benefit – consultation runs until 14 October 2011 dealing with localising support for Council Tax in England Housing Benefit Reform – Supported Housing - consultation launched on 19 July 2011 and closing on 19 October 2011 addresses the issues of effective help to people with specialist housing need Following these consultations there are varying timescales for the resultant changes to be implemented. Initial work has begun in all these areas and Members will be kept informed of progress. However, little work can yet be done on the financial impact for the Council although these need to be assessed at the earliest possibility because they all impact on the medium term planning timescale. 2.5 The 2010/11 Outturn report was presented to Cabinet on 6 June 2011 and identified a number of underspends. Any of these underspends which are anticipated to continue during 2011/12 have been identified within this report, along with their anticipated full year effect. 3. Budget Monitoring Position – Revenue Services 3.1 The general fund summary (Appendix A) shows the high level position at the end of period 4 and is currently showing a year to date variance of £170,096. The Council introduced a new policy earlier this year to improve the commitment accounting through the financial system whereby payments would not be made unless they were accompanied by a purchase order (except for some specific types of payments which were excluded from this requirement). This does however cause an issue with the budget monitoring report as the current commitments are showing as £4,499,516 but these are full year commitments (as there is no method of profiling these on the financial system) and include committed expenditure but do not include income due during the Cabinet 05 September 2011 Overview and Scrutiny 20 September 2011 year, the focus of the report is therefore on the Year to Date (YTD) variance. Further details on each of the service areas are included within Appendix B. 3.2 The main variances in relation to commitments are in connection with contract payments, for example, within Environment there is a commitment showing for contract costs of £2.3m against a full year budget of £1.5m but this is due to the fact that the commitment represents the contract costs for the entire year and the £1.5m is the net cost of the service so there is still 8 months of income to be collected in relation to this service area which accounts in the main for the difference. 3.3 The following tables provide details for each of the service areas, the more significant variances along with those which are anticipated to have a full year effect. Community Development Management – Although compared to the same period last year the number of planning applications received has decreased slightly, a number of large fee applications has meant that income is up (£4,545) against the profiled budget. Income generated from the discharge of planning conditions has also increased and is currently (£12,047) above the profiled budget. It has been agreed by CMT that this additional income will be used to fund a one year planning student placement, and therefore no full year effect is anticipated. Over/(Under) spending to date £ (19,222) Estimated full year effect Performance Indicator at Period 4 where applicable £ 0 531 applications have been received to P4 in the current year compared with 551 for the same period in 2010/11 Strategic Housing – The variance to date relates to rolled forward provisions for old HRA electricity accounts which have not as yet been offset by expenditure (£22,861) and slightly lower than anticipated R&M costs (£3,332). A (£3,999) income contribution has also been received from the Rough Sleeper fund. A full year effect is anticipated in relation to the electricity provisions, although some of this may be required to fund water charges. (25,243) (20,000) Transport – There is currently an underspend being reported in relation to this service area, however a 2010/11 invoice is still awaited for £37,070 relating to adjustments to quarter 3 and 4 payments to bus operators. No full year effect is expected. (37,113) 0 Sub Total Community (81,578) (20,000) Cabinet 05 September 2011 Overview and Scrutiny 20 September 2011 Environment Over/(Under) spending to date £ Estimated full year effect Performance Indicator at Period 4 where applicable 4,069 £ (10,000) Sports Centres – The variance in relation to this service area relates mainly to an invoice for the hire of Stalham Sports Hall for £24,787 which has not yet been received. No full year effect is expected in relation to this. (24,324) 0 Dual use and sports hall usage April to June Actual 176,410, Target 167,685 Waste Collection and Disposal – The overall position at the end of period 4 shows an overspend, however the majority of this £72,532 relates to the receipt of recycling credits which, due to an audit at NEWS and an admin delay with Norfolk County Council, are not now expected until the end of August. Prescribed fee income is also down by £13,210 against the profiled budget to date but it is anticipated that this shortfall can be made up over the year and therefore no full year is anticipated. 95,517 0 Recycling rate for all recyclables 45.87% (based on estimates for disposal), target 47.5%. (20,345) (18,000) 54,917 (28,000) Licensing – there is a minor overspend showing at present within licensing, £7,280 relates to fee income being lower than anticipated at this stage in the year although approximately £16,000 of income has been invoiced within the last 2 weeks so no full year effect is expected in relation to this. There is also an underspend showing of (£3,203) in relation to taxi test recharges, this reduced cost is expected to continue during the year and at present a full year saving of (£10,000) is expected. Civil Contingencies – The variance on this budget relates to the vacant post for the Civil Contingency Manager. Interviews are currently being held and an appointment is expected shortly. There is a full year effect of £18,000 anticipated at present. Sub Total Environment Cabinet 05 September 2011 Overview and Scrutiny 20 September 2011 Information IT – Support Services – the underspend currently showing relates mainly to an invoice that is in dispute dating back to 2010/11 (£7,536), lower than anticipated charges on telephone rentals and calls to date (£11,390). No full year effects are anticipated at the current time but the telephone budgets will be reviewed as part of the revised budget process. Over/(Under) spending to date £ (27,836) Estimated full year effect £ 0 Election Services –The current overspending represents the payments to election officers which are to be recovered from the returning officer together with an outstanding balance due from Central Government (£14k) relating to the May 2010 General Election. 57,661 0 Customer Services, Corporate – The reason for the underspend to date is due partly to lower than anticipated salaries and oncosts (£5,270), additional postage recharges (£6,549) and other minor variances. At present no full year effects have been anticipated. (20,429) 0 9,396 0 Over/(Under) spending to date Estimated full year effect Sub Total – Information Resources Local Taxation – The variance to date includes one-off restructuring that are to be funded from the restructuring reserve and an overspend in relation to postage costs. There is not anticipated to be any full year effect at this stage. Benefits – The variance to date reflects £48,000 of additional Benefits software costs relating to the Atlas project but this is due to be fully funded by a grant from the Department of Works and Pensions. There is also a variance of £5,693 in relation to the write off of bad debts which is not budgeted for at service level. Neither of these items are expected to have any full year effects. £ 32,875 55,261 Performance Indicator at Period 4 where applicable £ 0 0 Performance Indicator at Period 4 where applicable Cabinet 05 September 2011 Overview and Scrutiny 20 September 2011 Pathfinder – It was originally anticipated that the Pathfinder scheme was to have been completed by 31 March 2011. This is not now the case and the unspent grant monies from previous years will be used to fund the ongoing expenditure and as such there is no full year effect expected. Corporate and Democratic Core – The majority of this variance to date (£96,500) reflects the creditor provision for audit fees charged to 2010/11. Sub Total Resources 34,149 0 (102,330) 0 19,955 0 4. Budget Monitoring Position – Savings and additional income 2011/12 4.1 As part of the budget setting process for 2011/12 a number of savings and additional income streams were identified and recommended for approval within the report presented to Cabinet on 14 February 2011. The following table provides details of the amounts included within the 2011/12 base budget along with an updated forecast for the current year. Table 1 – 2011/12 Savings and Additional Income Service Area 2011/12 2011/12 Variance Base Updated Budget Forecast £ £ £ Planning and Building Control 35,707 35,707 0 Conservation and Design 10,000 10,000 0 Land Charges 8,587 8,587 0 Regeneration Management 4,000 4,000 0 Housing Service 21,337 21,337 0 Environmental Health 8,400 8,400 0 Sports Centre 10,115 10,115 0 Media and Communications 47,240 47,240 0 Legal Services 55,000 55,000 0 Customer Services 10,544 10,544 0 Car Parking Management 40,000 40,000 0 Revenues and Benefits 77,254 77,254 0 Organisational Development 56,284 56,284 0 Financial Services and Internal Audit 68,800 68,800 0 Partnership and Community Engagement 105,000 105,000 0 Sub Total Savings 558,268 558,268 0 Additional Income/Grant: Planning Fee Increase 50,000 50,000 0 New Homes Bonus 350,000 350,000 0 Homelessness Prevention Grant 120,470 120,470 0 Leisure Facilities Income 37,718 37,718 0 Car Parking 20,000 20,000 0 Sub Total Additional Income/Grant 578,188 578,188 0 Total Savings/ Income 1,136,456 1,136,456 0 Cabinet 05 September 2011 Overview and Scrutiny 20 September 2011 (Note – All savings are shown gross. Any one off redundancy or severance costs associated with delivering these savings will be met as one off costs from the restructuring earmarked reserve). 4.2 A number of the savings are being achieved in the year from service restructurings for which one off costs are being funded from the restructuring earmarked reserve which was established for such purposes. Business cases are being produced for service restructurings which are then signed off by Corporate Management Team, the Leader and the Cabinet Member with responsibility for Organisational Development. 4.3 The balance in the restructuring reserve at the beginning of the financial year was £340,000, as restructurings have taken place in the year to date one-off costs have been funded from this reserve. The level of the reserve is being monitored along with all reserves, going forward the available balance in this reserve will need to be considered as part of the medium term financial planning process to ensure that one-off funding is available to be used to create capacity through restructuring opportunities. 4.4 As part of the 2010/11 period 4 budget monitoring report presented to Cabinet on 6 September 2010, approval was sought and granted for delegated authority to be given to the group signing off the business cases (as referred to at 4.2) to release funding from the restructuring reserve to fund the one off costs associated with restructuring, thereby strengthening the linkages between the decision making on business cases and the associated resources. 5. Budget Monitoring Position – Non Service Expenditure and Income 5.1 Treasury Management in Local Government is governed by the CIPFA Code of Practice on Treasury Management which recommends that Members should be informed of Treasury Management activities at least twice a year, but preferably quarterly. Regular treasury reports in accordance with the requirements of the Code are presented to members as part of the budget monitoring reports, and this report summarises the investment transactions which have taken place in the four months to July 2011. 5.2 Inflation, as measured by the Consumer Price Index (CPI), rose to 4.4% year-on-year to July 2011. The Bank of England in its August Inflation Report attributed this rise to increases in energy and import prices, and the increase in the standard rate of VAT. The bank considers it likely that inflation will rise further, possibly to 5% following further gas and electricity price increases, before falling back from around the end of this calendar year, although remaining above the 2% target for at least another year. 5.3 The outlook for economic growth is weaker than the Bank projected in the last quarterly report and remains highly uncertain. Growth is likely to remain sluggish in the near term reflecting the continuing squeeze on household incomes, before gently picking up as business investment improves, the economy gradually rebalances from the service industries to manufacturing and the squeeze on household incomes abates. It has reduced its forecast for Gross Domestic Product (GDP) in 2011 from 1.9% to 1.7%, and for 2012 from 2.5% to 2.1%. 5.4 The Bank has declined to make a commitment to holding interest rates, currently at 0.5%, for a set time period (the US Federal Reserve has frozen short-term interest rates for two years). The bank did not feel it had to make a specific commitment as current market expectations of the bank rate in 2012 are very close to where it is now. Table 1 below sets out key economic indicators relevant to treasury activities to the end of period 9 (where available). Cabinet 05 September 2011 Overview and Scrutiny 20 September 2011 Table 1 2011 Indicator March June 0.5% 0.5% - Consumer Price Index 4.0% 4.2% - Retail Prices Index 5.3% 5.0% % change on corresponding quarter previous year 1.8% 0.7% % change on previous quarter 0.5% 0.2% Public Sector Finances Quarter 1 Quarter 2 Public Sector Net Borrowing £23.9bn £39.2bn Public Sector Net Debt £905.3bn £944.3bn Net debt as a % of GDP 60.2% 61.9% Nov - Jan Feb - Apr - Number (000s) 2,518 2,430 - Rate 7.9% 7.7% 184 191 6.1% 6.3% Bank Base Rate Inflation Gross Domestic Product Growth (GDP) Unemployment National Eastern Region - Number (000s) - Rate 5.5 Security of the capital sum remains the Council’s main investment objective. This was achieved by following the Council’s investment counterparty policy set out in its Treasury Management Strategy Statement for 2011/12 and advice from the Council’s treasury advisor, Arlingclose. 5.6 Financial markets are extremely nervous at the moment and are suffering from extreme changes in sentiment. The stresses are most extreme in Europe where the lack of real progress in resolving the sovereign indebtedness problem is affecting even the stronger economies of the euro zone such as France. Arlingclose consider that the markets are not being driven by fundamental economic data, but rather by fear. They cannot ignore this extreme tension and negative sentiment driving the markets however and in response have suggested that a prudent response would be to reduce maturity limits for new investments. Cabinet 05 September 2011 Overview and Scrutiny 20 September 2011 5.7 The Council will adhere to their advice and the following maturity limits are now being applied to counterparties on the approved list. 5.8 • UK banks and building society – maximum maturity limit 6 months with exception of Santander UK plc which is limited to 3 months and Clydesdale Bank which is 1 week. • Australian, Canadian and US banks – maximum maturity limit 6 months. • European banks – maximum maturity limit 1 month (Société Generale has been temporarily suspended from Arlingclose’s approved counterparty list). Table 2 below sets out the investment activity for the quarter. Table 2 a) Banks & Building Societies c) Money Market Funds d) Bonds Balance Investments Investments Balance Increase/ 31/03/2011 Made Repaid 31/07/2011 (Decrease) £000s £000s £000s £000s £000s 14,695 12,305 (10,000) 17,000 2,305 395 34,890 (34,705) 580 185 6,500 0 0 6,500 0 21,590 47,195 (44,705) 24,080 2,490 5.9 The 2011/12 budget anticipates that £550,000 will be earned in interest. Surplus balances available for investment are anticipated to average £22.8m at an interest rate of 2.42%. 5.10 In the first 4 months of the financial year the average amount invested was £25.5m at an average rate of interest of 1.94% resulting in an overall interest earned figure of £166,631. This is £29,243 below the budget position at the end of period 4. The rate achieved on investments is lower than anticipated but this has been offset by higher balances available for investment. It is anticipated at this stage that additional interest earned on higher investment balances will be offset by the reduced rate of interest which the Council can achieve on its investments, and no shortfall of interest against the budget is currently anticipated at the year end. 5.11 During the quarter the opportunity was taken to make two long-term investments to protect the Council against the possibility of interest rates remaining low for an extended period. A two year investment was made with Lloyds Bank plc at a rate of 2.65% on the 18 April, and a fifteen month investment was made with the Bank of Scotland at the same rate on the 6 May. Cabinet 05 September 2011 Overview and Scrutiny 20 September 2011 5.12 The Council can confirm that it complied with its Prudential Indicators for 2011/12 which had been set at Full Council on 14 February 2011. Details of individual indicators are set out in Appendix C. 6. Budget Monitoring Position – Summary 6.1 The following table provides a summary of the full year projections for the four service areas along with an updated use of reserves figure, this would allow for a contribution to be made to the general reserve at the end of the year. Service Area Community Estimated Full Year Effect £ (20,000) Environment (28,000) Information 0 Resources 0 Service Variance Total (48,000) Contributions to/(from) Reserves: General Fund Reserve Other Reserves Non Service Expenditure ,and Income Total Impact 0 0 0 (48,000) 6.3 Overall the revenue position shows a projected underspend of £48,000. This position will continue to be monitored and this report will inform the financial planning and budget process. 7. Budget Monitoring Position – Capital and Prudential Indicators 7.1 Members were provided with an updated capital programme for both current and future years as part of the 2010/11 final accounts report in June 2011. Appendix D shows the latest position for the updated programme, both for General Fund and the Coast Protection, and provides details of spend up to period 4. The latest position on the prudential indicators are included within Appendix C, these have been updated for the 2010/11 final accounts position where applicable. 7.2 The following commentary provides an update on non housing schemes; a) Car Park Ticket Machines – there are currently 2 separate budgets for car park ticket machines, phase 1 has a remaining balance of £16,768 while phase 2 is currently showing an overspend of £9,174. It is recommended that these 2 budgets are amalgamated into 1 single budget. This will leave a remaining budget of £7,594. b) Similarly it is recommended that the budgets for phases 1 and 2 of the Car Park Environmental Improvements (remaining budgets of £38,645 and £52,000 respectively) along with the remaining budget for the Cliff Top Car Park Fencing scheme of £6,386 are combined to give an updated budget of £97,031 for Car Park Environmental Improvements. c) There are 2 schemes where the budgets are no longer required, these include the budget for the purchase of new Beach Huts (remaining budget of £7,657) which was Cabinet 05 September 2011 Overview and Scrutiny 20 September 2011 completed during 2010/11 and the Remote Access project (remaining budget of £9,930) which again was completed in the previous financial year. It is therefore recommended that these schemes are removed from the capital programme. 7.3 The Housing Renovation and Disabled Facilities Grants schemes are progressing, but, as with the budget available for Strategic Housing and Choice Based Lettings System, they will all be subject to Member decisions, based on the Housing Strategy document which is to be approved by Cabinet, and will be reviewed as part of the Revised budget process. 7.4 Coast protection and coastal pathfinder projects are progressing. Updates on the progress of the pathfinder capital projects are being reported to the Coastal Management Board. 7.5 Capital Receipts - The updated capital programme for 2011/12 assumes that new capital receipts of £85,000 will be generated in the year from the disposal of the public convenience on the East Promenade in Sheringham. This disposal has now been completed and the Council achieved a capital receipt of £104,000 in relation to the disposal which is £19,000 higher than the original estimate. In addition the housing capital programme assumes capital receipts of £130,000 from preserved right to buys. Two right to buys have been completed in the current year so the forecast budget has already been achieved and so the position will be reviewed, in consultation with the Victory Housing Trust, as part of the revised budget process. The position as regards capital receipts and financing requirements will continue to be monitored through the year to ensure that the current capital programme remains affordable. 8. Implications to the Council 8.1 The overall budget continues to be closely monitored at service level on a monthly basis and to Members on a quarterly basis. By the end of September the audit of the 2010/11 accounts will have been completed and reported to the Audit Committee. Over the coming months detailed work will be carried out by Officers and Members of Cabinet on the future funding shortfall facing the authority over the coming years. The current financial position of the Council will be used to inform the revised estimate position for the current year and also the Medium Term Financial Strategy. 8.2 The detail within section 3 of the report outlines the significant variances against the profiled budget to the end of period 4 and also those anticipated to have a variance at the year end. Overall the total of the projected service variances at the year end is an underspend of £48,000. Therefore the current forecast for the year assumes that the revised budget remains achievable. 9. Recommendations 9.1 It is recommended that: 1) Cabinet note the contents of the report and the revenue account forecast for the current financial year; 2) That Cabinet note the current position on the 2011/12 capital programme and approve the amendments in relation to the amalgamation of a number of capital budgets and the removal of 2 schemes as detailed within section 7 of the report.